There is no such thing as a free lunch. There is a vein of gold in that old saying. And yet, that doesn’t stop many from trying to get something for nothing. Entire generations have grown up now trained to depend on the government for support whether it be through food stamps, skewed tax credit laws or welfare. The price they pay in dignity, respect and freedom is barely noticed by many of them. And yet, even with those who are truly in need or who truly deserve the help there are many more who look for ways to scam the government for funds.
Each one of them is convinced they have found the fool-proof way to scheme Uncle Sam and in many cases they get away with it temporarily. Though there are many variations on the overall themes, each will generally fall within one of five categories.
1. EIC Fraud
2. “Under the Table” Payroll
3. Falsifying of W-2 or 1099 information
4. Clustered Nest
5. Multi-Level Marketing Tax Evasion Methods
Earned Income Credit is a refundable tax credit meant to help working single parents. Normally, the way a tax credit works (nonrefundable) is that if an individual has paid $5000 in taxes for the year and qualifies for the $10,000 tax credit, they can only receive the $5000 they paid in taxes. If the individual paid $0 in taxes, the tax credit could be as much as $50,000 or more and they would get $0. With the refundable tax credit, the individual isn’t required to have paid taxes to get the earned income credit added to his or her refund amount.
It works on a sliding scale where the EIC climbs up to it’s maximum (usually around $15000 in earned income) and as the income climbs above $15,000 the EIC slides down. Maximum EIC is usually around $5500. Finally at about $28,000, the EIC has decreased to $0. As someone who spent several years preparing taxes in the lower income bracket neighborhoods, let me tell you that there are those whose whole year is planned around receiving this huge check of taxes taken from those who pay them and given to those who won’t. EIC is given only for your first two children from birth to age 17.
The ‘married or unmarried’ couple with four kids will go in to a tax prep office, separate ones if they are experienced at this. And though each lives in the same house, each one claims the Head of Household status, which increases the amount they can deduct off of their taxable income and with each of them claiming EIC they can receive a checks totaling up to $10,000 for end of year tax filing season. The Head of Household is supposed to be for those who are receiving no other support from anywhere else. The Head of Household must be providing for that Household, so if there is a boyfriend, girlfriend, spouse, parent etc living there, they …